Cargotec Corporation

Welcome to Cargotech's full year 2023 results call. My name is Akivesi Kallio. I'm from Cargotech's investor relations. Today's results will be presented by Cargotech's CEO and Kalmar's interim president, Kasimir Lindholm, CFO Mikko Puolakka, and HIEB's president, Scott Phillips. The presentation will be followed by a Q&A session. Please pay attention to the disclaimer in the presentation as we will be making forward-looking statements. With that, over to you, Kasimir. Thank you, Aki.

Also welcome on my behalf. It is, of course, great pleasure here to present a very strong year, four consecutive quarters in a row with stable and good performance. And it is a step change compared to the historical numbers. Orders received down from last year, I'll come back to that a bit later on. Sales, of course, on a very high level of 4.5 billion. We have positive news also that service sales increased, eco-portfolio increased, and I'll come back to those figures a bit later as well. Then all three businesses contributing in a very positive way, of course, Calmer and McGregor on a completely different level compared to 2022 and also Hayab improving from previous years. So we are on a 11.2% operating profit level above 500 million euros. Orders received, we are back on pre-COVID levels. Q4 as such, I think, positive compared to Q3, and mainly strong order intake from Hayab. And Scott will come back to that a bit later on. All in all, orders on a roughly 4 billion level in 2023. Now the order book is on 2.8 billion level. And then if we look back to the pre-COVID levels, we are above those levels. So taking out 21 and 22 that were special years, we still have a good order backlog going into 2024. And Of course, the operating profit then quarter by quarter, we see a very good trend in all businesses. We have some one-offs that both Scott and Mikko will comment later on, especially in Haiep, partly in Kalmar. And those are mainly connected to the cost saving program that we announced in Q3. And I will come back to that as well in a few minutes. Service sales, all in all, also here very positive development in 2023. We had a bit slower levels in service orders in Q4, but all in all, 2023 also here. very positive and good development. That said, I think this is the area in all three businesses where we have a lot of potential going forward, especially in Kalmar and McGregor, but also in Hayab. So this will be one of the key areas where we focus going forward. Ecoportfolio also here, positive numbers, positive improvement in 2023. So we have increased in climate solutions and in circular solutions, and we see a positive trend in all businesses in the ecoportfolio side as well. Then coming back to Q3 and the cost savings program that we announced that we have been working on then in the fourth quarter and we see results in this area as well. This was, of course, our way to safeguard profitability going forward. We have a clear drop in orders compared to the 22 numbers in Hayab and Kalmar, roughly 400 million euros less in order intake compared to the record high 2022 levels. So we responded to that and we have worked a lot in this area. And you can see that we have roughly 50 million euros booked as cost attached to the cost-saving program in the fourth quarter, roughly 10 in HIEB and five in Kalmar. All in all, we look at a reduction of roughly 300 roles, and you will see that that comes with a bit of a lag, both regarding internal and external resources over the Q4 and then Q1 and Q2 this year. Then on top of that, we have made a lot of adjustments in McGregor offshore business, roughly 350 roles impacted by those initiatives. Also here, the restructuring cost 13.5 million in 2023. We still have some costs to come in 2024, especially then in the first and second quarter, we'll see the reduction that we have been working on. As a consequence of this, we are not anymore in McGregor in three divisions. The offshore division is now underneath the merchant division, and it's called equipment and solutions. So we'll only have equipment and solutions and service within McGregor, because the offshore business is clearly smaller than in the past. With that said, I'll give the word to Scott. Scott will present HIAB Q4 and 2023 results. Thank you, Casimir.

And greetings from my side. So I look forward to take you through the results for our business area, HIAB and Q4. I'd characterize the quarter from a headline financial perspective. The key highlight for us was the fact that Order intake did improve year over year, finally starting with a four rather than a three. And what I would characterize is that that puts us on a nice stable level, both with regards to order intake as well as sales. The disappointment in the quarter, of course, was our operating profit, which was heavily impacted by one-off cost, as Casimir has already alluded to, and I'll give you a bit more color on that one in a few slides. One of the key highlights for us as well, both in the quarter as well as the year, is the substantial increase in cash flow. We had an increase of roughly 83%, 84% year over year. And in the quarter, we had a similar, if not a slightly higher, increase in cash flow. So good job by the team overall. Great partnership with all of our distributors as well as customers. So really pleased with that result. And that sets us up nicely for the year to come. So then diving into the numbers, as I said, we had a stable order intake level. I'd say for the fifth quarter in a row, we're on a pretty good level. And to put it in a bit more context, in Q3, I think I alluded to, we had a large order that just in terms of completing the transactional process, not able to book in Q3, therefore it moved to the right in Q4. So just to put it into proper context, I'd say it puts us on quite a nice stable level in the 375 to 380 range adjusted for the reduced working days in Q3. So we're really pleased about that. Inflation and interest rates are still impacting customer orders in certain geographies. However, what I'm pleased to report is that the lead times in our truck OEM partners did increase and improve throughout the quarter. As a consequence, there was a heavy amount of usage in our maintenance and repair capacity utilized for installation, so we had a slight uptick in our revenue curve on the installation side. but overall relatively stable there, but it did impact slightly the orders that we received on the services side, so that resulted in this flat development that Kazimir had alluded to as well. And I'm quite pleased, even though the curve is on a steady decline in terms of the order book, that means that we've been quite effective in converting the backlog that we built up in the latter half of 21 and throughout 2022, so quite pleased with that. We go into 23, I think, on still a really good level. We've got a significant amount of the year covered in the order book, and we've got nice momentum in terms of converting that throughout the business. So more to follow on that one in the subsequent quarters to come. In terms of the sales side, as I mentioned before, we're on quite a stable level. In quarter four, we were at 450 million euros of sales versus 456 in the prior year. That's down 1% in actual exchange rates. In constant currencies, we were actually up a percent. Our service sales were on a similar level as last year at 114 million versus 113 million last year. And that represented both a 25% increase contribution of our overall revenues, so quite strong operational execution, both in terms of our service and sales operations, as well as our supply operations. And our supply chain continues to develop and get stronger, so really proud of the entire team in that regard. We have a heavy focus on partnering with our suppliers, and they've supported us quite nicely throughout the year. And then in terms of then the residual earnings from that sales profile that I just described, it was a disappointment overall in the quarter from the perspective that we delivered 48 million euros versus prior year at 62 million euros. So that's a 22% decline or 10.6% relative operating profit versus 13.5% last year. So we're not pleased about that. However, we were affected heavily by the one-off cost, roughly 16 million euros. As Kazimir told you earlier, 10 million of that was due to restructuring costs with the cost savings program that we announced last quarter. There was an additional 6 million euros that we had taken decisions to make investments to grow in attractive market segments, which were materialized and booked as operating expense in the quarter. so therefore had a significant impact on the overall results. However, without those one-offs, we were at 14.2%, so roughly a similar level to last year with not quite as strong operating leverage as we'd like. But nevertheless, I feel like we've got some nice momentum going into 2023 to continue to deliver on quite a good level at or above our expectations. I'd like to end the high-up section highlighting a couple of things that we're very proud of. As Kazimir alluded to earlier, our echo portfolio orders and solutions are growing. We're quite pleased about the fact that we had a significant increase year-over-year in our overall order intake. We ended on a level of 31%, so right about our expectations. In terms of the connected units, which is key for us in terms of shaping the future development of our business as well as our customer operations, We had a 34% increase year over year in connected units. So that brings us up to a level of 35, 36,000 connected units. And that's going to enable us to significantly improve safety, productivity, and sustainability for our customers. And then along the lines of sustainability, I'd love to highlight a recent innovation that we've launched to the marketplace. This is our generation three electric power takeoff for our loader crane business. Covering a broad range of products in three different classifications of offerings from light, standard, and heavy duty. Covering our range up to 40 ton meters. Our light and standard duty electric power takeoff represent a step change in the industry and design in that the design is integrated into the base frame. And that's both an advantage for the use phase and the duty cycle, but at the same time it's a big advantage in reducing the installation time. Our heavy-duty range is still installed into the truck chassis, but we have a 41-kilowatt power available battery electric power solution. So the power that we're able to deliver can be maintained throughout the load cycle, which is unmatched in the industry. So we're really proud about that. And most importantly, we know that we are enabling safer, more reliable, and a significant noise reduction for the entire operator experience. And then also there's a big advantage to our customers in allowing the operations to commence earlier in the day as well as to end later in the day with the reduced noise. That's a huge productivity gain for our customers. So please come check out our hyup.com for more on this product as we're quite proud of it, as you can tell. So with that, I'm going to turn it back over to Kazimir to tell you about Kalmar.

Thank you, Scott. Then over to Kalmar. Very strong finish to the year. It's all in all a record year in Kalmar. I'm very happy to present that. Demand, I would say, stabilizing. We'll come back to that a bit later on between the quarters. And of course, we have done a great job in delivering the record high order book. And the profitability was on a good level throughout the four quarters. And then the cash flow was record high in Q4. So really good job at the end of the year. So we are seeing demand stabilizing. Look at the fourth quarter. Now we have two quarters in a row. on the 400 million euro level, so that's good. And keeping in mind then that we have a strong order backlog for 2024. We still see some slow decision-making regarding larger equipment, and we still have the destocking issue within terminal tractors. But I think that will, over time, of course, normalize. Again, the order book gives a good visibility, especially for the two, in some cases up to three quarters for 2024. And then on top of that, we have the adjustments on the cost side ongoing. So I think we're in a good place looking at 2024. Then, of course, when we come from 21 and 22 on a record high level in orders and then coming down to this new level in 23, we can see that the sales is then going down and we are adjusting, as said, then the cost side to this lower order intake compared to the record 21 and 22. Service sales was growing in constant currencies. And again, emphasizing, I think this is area where we have clear potential in Kalmar going forward, both regarding growth and profitability. Then comparing the quarters here, the cost saving program and one of cost was 5 million. So without those, we would have been on a 14 percentage level regarding operating profit. And as you can see, all four quarters in 23 on a very good and stable level. We have some losses also from heavy cranes still in these numbers, although they are single digit. And to a large extent, then heavy cranes is out of the portfolio going into 2024. Some few millions left in the order backlog. And maybe on top of that, Good to emphasize. We have been really successful in managing the inflationary pressures and component availability, and that can be seen in the results as well. Then some milestones. The EV side is developing. We have been so successful in deliveries of electric reed stackers and heavy forklifts. And we see first repeat orders in this area. So that's very positive. And we can see that also in Of the overall, one third of the orders in light and medium forklifts are now of electric versions. As mentioned before, also on cargo tech level, the ECO portfolio is increasing. Last but not least, we are developing the third generation of our electric terminal tractors, and that development continues. With that, I'll give the floor to Mikko. Mikko will present McGregor results and then go into Cargotech-level results.

Thank you, Kasimir, and good morning also from my side. McGregor was a really big bright spot for Cargotech in Q4, but also in the full year 2023 by delivering €80 million comparable operating profit improvement for the full year 2023. McGregor's solid order intake continued in merchant and service business. The offshore orders were only 10% of McGregor's quarter for orders. So we have been still very restrictive with the offshore order intake in order to make sure that the McGregor turnaround continues. McGregor starts the 2024 with 1 billion euros order book, which gives a very good basis for improving the profitability in 2024. and also visibility beyond the 24. Profitability, as mentioned already earlier, is a special highlight. McGregor delivered 13 million euros comparable operating profit, and this was mainly driven by three reasons. We had a favorable sales mix, meaning that merchant and service revenues grew. Also, our fixed costs in McGregor were lower, driven by the previously mentioned offshore restructuring And then we had significantly lower project cost overruns in offshore projects compared to quarter four 2022. The MacGregor full year 23 comparable operating profit was 33 million euros. The offshore full year loss was roughly 30 million euros. So if we exclude the offshore part of the McGregor business, McGregor profitability would have been for the full year, 10% already. At the end of the year, we had still in offshore project portfolio, a handful of loss-making projects, and these we are planning to complete in 2024. And as mentioned already earlier, we continue with McGregor restructuring. Last year in 23, we delivered 14 million euros cost savings and we plan to execute another €9 million in 2024. If we look at the highlights of 2023, so many records, what you can see here, were broken in a positive manner, so we had an excellent year in terms of PNL KPIs, in terms of cash flow, and also what comes to the balance sheet. Basically, I would say that for these financial highlights, there are three main drivers. First of all, our revenues grew by 500 million euros. Together with the very strong commercial execution, we have been able to extract nice profitability from that revenue growth. McGregor turnaround has been progressing very nicely, significant improvement in there. And then thirdly, also the heavy grains losses have been significantly lower as mentioned by Casimir earlier. And these have had a significant impact on all these KPIs. Excellent development in ECO portfolio sales. Revenues there almost 1.5 billion euros. And positive thing is that the eco portfolio revenues have been growing faster than the traditional product sales growth. So in line according to our strategy. And really super strong cash flow and then profitability driving our ROSI to almost to 20% at the end of the year. If we look our cash flow, quarter four was all time high in Cargotech's history. It was very much coming from the very strong profitability in our all three business areas. And then we have been able to reduce the networking capital by roughly 180 million euros during the fourth quarter, mainly coming from the inventory reduction. Inventories went down by 111 million euros. Both Kalmar and Hiab had roughly a cash conversion of 90%. So with cash conversion, I mean the cash flow against the operating profit. Typically, these businesses, Hiab and Kalmar, have had a cash conversion of 100 or even above 100. But still, during 2023, we have been constrained by the supply chain and that has led to suboptimal networking capital development. MacGregor had a cash conversion of over 100%, and this was driven mainly due to the strong orders in Merchant and the related advance payments. Our balance sheet position is very strong, giving, of course, a solid basis now for the to be separated companies and also to pursue further M&A activities. our gearing was 10%, and if we exclude the IFRS 16 lease liabilities, our gearing would be actually zero. Our debt portfolio or maturity portfolio is very, very smoothly distributed across several years, and basically during 2024, we have a 100 million euro bond, which is maturing in March. The board of directors dividend proposal for the AGM is 2.15 euros per B share. This is a 59% increase from previous year and this dividend payment represents 40% dividend payout ratio and about 4.1% dividend yield. Dividend would be paid on 10th of June 2024. In line with our strategy to separate our three businesses, Kalmar, Hieb and MacGregor, we have decided now to provide for 2024 a separate outlook for these three businesses. This outlook is provided on the same basis as these three businesses have been reported also in 2023. In the outlook, we have taken into account that Kalmar and Hieb start 2024 with some 30% lower order book compared to 2023. We have also taken into account the cost savings program, what Kasimir already mentioned earlier, the 50 million euros cost savings program, and those benefits on our fixed costs in 2024. And based on the estimate, we expect the EAPs comparable operating profit to be above 12%, Kalmar above 11%, And then for McGregor, we expect McGregor comparable operating profit in millions of euros to improve from 2023 level, very much driven by the favorable sales mix. So meaning low offshore sales versus merchant and services, and then the offshore restructuring where we expect another 9 million euros cost savings in 2024. And with that, I would hand it over to Kasimir for the other big news of today.

Thank you, Mikko. And then we continue into the last section of the presentation. Kalmar demerger plan approved by Chiropractic Board today. And then I will go through what that really means and what are the sequences here that we are planning. First of all, a quote from our chairman of the board, Jaakko Eskola. I quote, the planning and evaluation of the demerger has progressed well. The board of directors, with the support of certain major shareholders, has, after careful consideration, decided to propose the separation of Kalmar from Cargotec by means of partial demerger to increase shareholder value. Jaakko Eskola, Cargotex chairman of the board of directors. So by this decision by the board, we'll continue on the path we have been since the 27th of April in 2023, when we announced our intentions. So when the board has now approved the demerger plan, We continue on work in all the streams, and then we are planning to have an AGM on the 30th of May, when then final decisions by shareholders should take place. More detailed information of course as part of prospectus then in May and we are also planning capital markets day for Cargotech with focus of course on Hayab and McGregor and then a separate one for Kalmar. On top of this, we are of course continuing to look for a solution for MacRecord during 2024. And as earlier stated, that will most likely take part in the second half of 2024. The structure of the plan transaction is as follows. There are no changes here. At the end of the There will be two separate stock listed companies in Helsinki, Kalmar in 2024 and Hayab in 2025. That is according to the original plan that we communicated 27th of April 2023. Kalmar Board of Directors proposed to be elected by Cargotech Annual General Meeting chair Jaakko Eskola, member Teresa Kemppi-Vasama and member Tapio Kolun-Sarka. On top of this, of course, we are in a recruitment process for additional board members then to be presented to the AGM end of May. Then today we also announced Kalmar's management team. And here, first of all, happy to announce that Sami Niiranen will join on the 1st of April, first as president of Kalmar and then CEO to be of Kalmar. On top of that, we have a change in the Cargotech leadership team. Karina Gebert-Teil will join Kalmar on the 1st of April. and other recruitment, then is Mattias Höglund, HR, joining Kalmar 1st of May. And with this team, we are confident that we are ready for a separate listed Kalmar and This work continues in that sense that we're seeking still one role than to have a full Kalmar leadership team in place in front of the partial demerger. The timeline is as follows. Then some in Iran to join 1st of April. Then we have the Q1 results end of April, prospectus during May, the capital markets day before the AGM, then separate for Kalmar, separate for Cargotec with focus on Hayeb and MacGregor. Then the AGM 30th of May. and then planned completion of de-merger 30th of June. And then the plan is to have these two separate shares available on the stock market 1st of July, then going live regarding Kalmar. This was the final part of the presentation. Last but not least, I would like to thank all Cargotech employees for excellent work in 2023. It was a very, very good result that we're able to present today. A lot of hard work behind this one. And of course, a lot of interesting things that we are planning for 2024. And then of course, thank you to all customer shareholders for the trust. And with that, we'll open up for any questions that you might have. And then please Mikko and Scott join me here on the stage.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.

The next question comes from Antti Kansenen from SEB.

Please go ahead.

Yeah, good morning, gents.

Thanks for taking my questions. I wanted to start with MacGregor and looking into 24 and trying to get the earnings outlook right. So could you comment a little bit About your backlog, how much you expect to deliver that during 24? Also, any information on the magnitude of the ongoing offshore projects 24 versus 23? And maybe thirdly, are there any concerns about sales mix in a sense that the equipment business is growing faster than services next year? Just trying to get my margin assumptions right.

Thanks for the good questions. Firstly, from the order book, we anticipate that roughly 40% of McGregor's close to 1 billion euro order book would be delivered in 2024. And then, of course, on top of that, we have the 300-350 million euro service business, which is a fast cycle business and will, of course, be booked in order intake and also delivered during What comes to the loss making projects, as mentioned, there is a handful of projects. There is one larger project and then a couple of smaller projects. The smaller projects or most of these projects are actually from the percentage of completion point of view already almost at 100 percent, but unfortunately not completed by the end of the year. of 2023 so some tails we will unfortunately still have in 24 and then what comes to your question concerning the mix I would say that we anticipate the McGregor's revenues to most extent be merchant and services both merchant and services are have been already in the past highly profitable businesses and the macro profitability improvement in 2024 is very much also expected to come from the positive development in merchant and services combined then those cost savings from the offshore business the 9 million what we are still expecting to deliver from offshore fixed costs

Maybe adding to that out of the order backlog in McGregor, the offshore portion is below 10% of the full order backlog. So give a picture of how small part of offshore is now going forward. And I stated before here during the presentation, it's now a product line underneath what we call equipment and solutions, which used to be merchant.

Yeah, I mean, is there any way to kind of quantify how much left is in the offshore? You talk about one larger and a couple of smaller ones, but maybe remind me what was the situation a year ago?

At the moment, we have roughly 70 million euros of offshore order book left and It is not all loss-making projects. So there are also these traditional offshore products like cranes, which we have been delivering over the decades and traditional products. So it's a handful of, let's say, loss-making offshore wind projects, which, as mentioned, are already in a very late stage of completion.

And in 2023, we said that we have 20 loss-making projects, and now we're down to a bit more than a handful. So that's how much has been delivered in 2023. So it's a smaller portion than in the past.

Okay, that's very clear. And then the final one is from Scott regarding HIAB. And apologies if you have to repeat yourself. The line was a bit breaking during your presentation. But could you talk a little bit about demand? I mean, we saw a sequence of improvement in in orders was this kind of a seasonal thing driven by a couple of larger deals that you got or how have you seen kind of the uh in demand developing and kind of now that we're entering into into 24 what's the uh what's the outlook regarding that one

Yeah, demand, as I said earlier, and it probably was my voice, so apologies for the voice to all of you. Demand's on a good stable level. The third quarter was a little bit lower than the normal seasonality due to the fact we had a large order move to the right. So that materialized in the fourth quarter. So that propped up the quarter a bit. So adjusting for that order, all four quarters ended last year on relatively the same level. And that was the same level as Q4 last year. So with the combination of still the two headwind variables in terms of interest rates and inflation, demand still remains muted a bit on that level. However, there's a bit of optimism coming from the reduction of the truck lead times, which we saw materialize throughout quarter four. And then if the European Central Bank and the Fed in the U.S. continue down the path of reducing interest rates, then that bodes well. Of course, that's all uncertain depending upon the level that inflation materializes at sequentially throughout the first half of this year, I suspect.

All right. Thanks so much. That's all from me.

The next question comes from Ponyu Leytinmaki from Danske Bank. Please go ahead.

Firstly, maybe continuing on the same topic for Kalmar. So, I mean, orders were stable sequentially compared to Q3, but what are you seeing going into 24 and first half? So, do you see that the demand is improving or is it like flat at this level? And how long do you think that the terminal tractor at East Auckland will continue?

Thanks for the question. I think it's a bit too early to say how it looks in 2024. Now we have only two quarters in a row on the stable, roughly 400 million euro level. So I think we need to come back to that one after Q1 or latest after Q2 to get a real real pattern. And as mentioned already in Q3 and Q4 reports, then terminal tractors, the destocking situation is normalizing at some point of time, of course, but a bit too early to say where we are there. It's on a downward trend, but after the high orders in 2021 and 2022, uh i think we we produced a bit too much uh for for the market so it needs to normalize and let's see in the in the coming quarter if we can be more uh let's say open and have full visibility of of that one okay thank you um then on high ups margins um just on the six million i mean why do you flag this as as a one-time cost what does it include uh

If it's like investment to crowd.

Yeah, I'll tell you the exact composition of the six million I wouldn't be able to go into. However, it is a one time investment to help us to grow into attractive market segments, which I'll be very happy to provide a lot more color on the impact that we expect to gain from those investments in an upcoming capital markets day.

But the idea is that this was just Q4 specific and then you. Correct. Okay. Thank you. Maybe a final one, if I may, on the guidance. So it's quite clear. But then how should we read that? So I guess there is some buffer if you say above 11 and 12. But, I mean, how much is this? Is this something that you could specify going forward? Or any thoughts on kind of how should we read those statements?

These are basically the floor what we are expecting to deliver. So for Kalmar, above 11%, for here above 12%, and then for McGregor, an improvement from last year's 33 million euros. We have not specified the, let's say, upper limit. limit if there is a need and a reason to specify the guidance more throughout the year then we would do that but that's the kind of floor what we are expecting to deliver at least in 2024. okay thank you the next question comes from tom skogman from carnegie please go ahead

Yes, good morning. This is Tom Skolmar from Carnegie. I have a couple of questions. So, when I look at the board's proposal for the AGM, do I understand it correctly that both Hayab and Kalmar will have A and B shares? If I start there.

Thank you, Tom, for the question. I mean, that is then a decision to be taken later on as part of the AGM. So, there is no official decision yet on that topic.

Okay and what can you now say about future head office costs compared to the old cargo tech structure that we saw in 23? I understand it's still a bit early but I guess it's good for everyone just to get these kind of numbers right in our models. So what are we looking at for changes basically?

Yes, if we would look on, let's say, as-is basis, so we would have three businesses throughout the year. Basically, our headquarter costs would decline from last year's 51 million euro by 10 million euros, as we have announced in connection with the quarter three results that we aim at reducing the group costs by 10 million euros. Of course, with the Kalmar demerger on 1st of July, part of the headquarter functions would move to Kalmar, so definitely the ultimate headquarter cost or the group cost will be very different if you compare 24 to 23, but I would say it's a bit early at the moment, yet we will need to be a bit closer to the demerger date to give indications for that.

But is it fair like to, I mean, despite these 10 million savings to expect rather that the combined cost for Kalmar and higher basically will be higher around 60 or so, despite these 10 million euros savings?

There are most probably certain dissynergies as we have certain functions which we need to duplicate, which are currently just as one function for Cargotech. On the other hand, We also expect, and that's part of the rationale of the demerger, that there will be also other operational benefits and improvements which are arising from this demerger. So some of the synergies will be offset also then by the benefits from the demerger. And this is part of also the equity stories and the capital markets days messages what we are planning to then disclose more towards the end of May.

And then looking forward, of course, we have expectations that the standalone HIAB and the Kalmar, then in the first two to three years, will work a lot with efficiency regarding both systems and processes. So that's the expectations at this stage. Then too early to say and give numbers on that, but that is, of course, the expectation that it will be a simplified structure and very focused from a process and systems point of view, when you're focusing on one business instead of in a conglomerate, we have several businesses and especially from the past, all the systems have been created for once upon a time, five, six different businesses. So that's an expectation, but we haven't put any numbers on that yet.

And then on these EO costs that you have guided for the completion of the merger, I think it was 60 million euros, if I remember correctly. So is this just going to advisors or what is this money kind of going to?

Yes, it's correct. In 2023, we incurred 23 million euros. And for this year, we expect or estimate 60 million euros Part of this goes to advisory, so legal advisory as an example. We have legal entity separations, we have IT separations, so there is quite a lot IT and administrative work needed to separate the two businesses. So tons of details behind these numbers.

And I mean, we have, it's quite an exercise. We have roughly 200 persons working every day on this project. So the complexity regarding, for example, the IT carve outs is there for sure. And we are in 50 countries and we have legal separations, I think, in 40. So it's an exercise from a legal perspective and a systems perspective of magnitude, what we are. conducting here.

The biggest effort related to the demerger is definitely the legal entity separation and the IT separation. As like Kasimir mentioned, we have had an IT setup, IT systems, several different applications for different purposes, which need to be now separated for Kalmar and the

the other businesses so that's a major effort behind this separation cost okay and then I would like to ask Scott about to get a bit more color on the demand you know by different geographies you know and different products is it still so that kind of the heavy side is the weak side and it's It's Northern Europe now weak because of the weak construction markets, et cetera.

Yeah, for us, you're spot on, Tom, and good morning. The heavier products, especially heavy cranes, have been impacted more versus the light, medium cranes and then other product lines that we have in the portfolio. Having said that, we've seen a nice offset in some of the other parts of the portfolio exposed to different segments, but it certainly is a construction segment that has been hit the hardest. Our overall demand in the Nordics has been down, but not as substantially as it otherwise would if we were better penetrated in the heavier cranes within those geographies. So for us, perhaps as compared to a few competitors has not been as represented as big of headwind as it otherwise would. But you're absolutely right. The Nordics down up in other areas, Overall revenue mix as well as the order intake mix actually stayed quite stable versus 2022. So about 55, 35, and 10 for us, 10 in APAC, 55 Europe, 34, 35 in North America or the Americas.

Okay, thank you.

The next question comes from Tommy Raylow from DNB. Please go ahead.

Hi, it's Tommy from DNB. A follow-up to Scott, actually. I was also going to ask about the end market split. You said construction hardest hit. So you would assume that that share has fallen maybe to 20% level, or is that correct, from 25%? I believe it was earlier.

Yeah, it's in that range, 20% to 25%. Still roughly a split 50-50 between the renovations and repairs so from the install base versus new construction one thing to keep in mind however with that exposure is is that our we have different products outside of loader cranes that would be exposed to that market so that somewhat muted the or offset the reduction that we had in the heavier cranes otherwise you're exactly right that percentage mix would have gone down more But because we had a substantial pickup in demand on other products that were exposed there, the overall exposure stayed relatively stable.

And would you say that construction has dropped?

Most substantially in the Nordics.

And then a question on the service profitability. Can you comment what was the outcome for 23 overall? And at Capital Markets Day, you mentioned roughly 19.6% for the services. Has that remained the level or improved? And maybe also follow up if there's any major differences between the businesses.

Yeah, we certainly had a nice uptick in the services profitability year over year. So really excellent job by the team there. And we will provide more color on that in the capital markets day.

And overall cargo tech level, we have stated that we are roughly on a 10% OP level regarding the products and roughly 20 on service. And of course, there are differences between Hayab and Kalmar and the divisions, but roughly those levels. And of course, we are targeting to grow service in all three businesses and profitability over the years to come. That is one of the cornerstones in all three businesses strategy going forward.

Thank you very much.

The next question comes from Antti Kansenen from SED. Please go ahead.

Yeah, hi. Just wanted to follow up on the cash flow. Mikko, you mentioned the cash conversions on Kalmar and higher, but maybe digging a little bit deeper. If you look at kind of the working capital, the sales levels on these two businesses, and I mean, Kalmar's mix has a little bit changed over the years. So what's kind of your normal working capital levels through the cycle for both of these businesses?

Overall, I would say still that, like also I said, that the cash conversions have been around 90% for Kalmar and Hiiap. So that basically indicates that the networking capital levels are still Let's say not an optimal level. I would say the main topics are still related to the inventory turnovers. What comes to accounts payables or accounts receivables, I see those on a good level. But inventories, they're both in Kalmar and here we have room to improve and it is still stemming from for example HIEP's case the truck delivery schedules changes there and when the products can be delivered and such things and then in Kalmar's case it's still in certain cases missing components and then also to certain extent this previously mentioned destocking as well

Okay, are you seeing any kind of new issues regarding kind of freight and availability because of the Red Sea issues? Is this something that could jeopardize working capital improvements during 2024?

We have seen in some areas and we anticipate in some areas a bit longer lead times, but I guess the COVID environment and the aftermath of COVID has also, let's say, helped us to understand and make the supply chains a bit more flexible. So here and there. We can have some delays, but at least so far too early to say that kind of nothing dramatic at least.

Yeah, I would echo that. And so far, and we're looking at this daily, nothing imminent. At the same time, I would expect that we should see a bit of extended lead times, perhaps impact more on the truck OEM side, which, of course, impacts our ability to convert our inventory into revenue. Maybe a bit of impact in tier two, tier three suppliers, both within that supply chain as well as our own. But as Miko said, we've learned over the last two, three years how to cope with that. So we have a lot more resiliency and flexibility in our end-to-end supply chain. So far, it looks like it's quite manageable with the potential risk for a bit of delays.

In Kalmar, we anticipate that in some of the divisions, we might see a couple of weeks delays here in Q1 or Q2, depending on how the situation develops in the Red Sea. So nothing dramatic, but some delays to be expected.

Okay. And just then a detailed confirmation on Mikko. When you talk about cash conversion, you are referring to operating cash flow and EBIT.

Yes, it's basically the EBIT after the items affecting comparability and then versus operating cash flow.

Okay, very clear. Thanks. The next question comes from Mikael Dopel from Nordea.

Please go ahead.

Thank you. Good morning, everybody.

Just a couple of questions here. Firstly, on pricing, I mean, given the market environment that you see out there seems to be perhaps bottoming out a bit, but at the same time, I guess demand is declining. Just wondering how that is impacting your pricing across your new equipment and service businesses when you're heading to 2024. Are you seeing any price pressure currently, or how would you describe the situation?

Yeah, I can take it for Hayab first. On our side, always there's price pressure. Our customers would absolutely love us to provide our offering at lower pricing. Having said that, we expect for pricing, at least the way we see it in the beginning of the year, to be quite stable sequentially. So in that regard, heavy negotiations. These conversations are always ongoing. We are under pressure constantly from competitors that also are trying to ensure that their factory order books stay on a good level and they fill the factory. So where we need to, we have an extremely professional pricing function, an emerging capability on our commercial excellence side, good partnership between those, our supply operations and our R&D teams. So, so far, we've been able to cope with this fairly well, and we expect that to continue into this year in 2024. but it will be a constant pressure point throughout the year, but we feel pretty good about our ability to cope with it.

Yes, similar in Kalmar. I mean, the price adjustments that were made in 21 and 22, I mean, we do not expect anything similar going forward. And the prices have stayed on that level. And then on top of that, there are some regular yearly price increases also now in 24. But similar situation compared to how high I've been in Kalmar.

Okay. Well, that's clear. Thank you. And then a couple of questions on the service business. If we start with 2023, you talked about capture rates, spare part capture rates in that business, which have developed positively in the years, but you're still quite far behind some of the kind of best-in-class operators on that front. So just wondering if you could describe how that capture rate developed for Europe in 2023.

Yeah, I can take that starting with HIAB. We've seen a nice development in HIAB. We teed up on our November 15, 2022 capital markets day that we would target to be at 47% capture rate, and that's about where we ended in the year. So that's a good improvement continuing over the past three years. Keys to us to get to the target level, and if you'll recall back to then, if you've seen the material either during the presentation or after, We think we can get to a level of 60% and critical for us is given the mix of our sales that go through our channel partners, then it comes down to visibility to the install base as we increase the amount of connected units, which I described earlier, as well as better and better partnership models with our dealers and importers. Then we're getting all the time much better control over the install base. Then we're able to partner with our channel distribution partners to go out and capture our full entitlement better and better as time develops. I'd say that we still have two to three years most probably to get to levels approximating or getting close to those target levels of 60%. So those are the two or three things that we need to do better moving forward. And we feel like we've got clear action plans to go from where we are now to where we desire to be. And we'll talk about this more in our upcoming Capital Markets Day as well.

From a Kalmar point of view, the growth in service was 8% if you take into account the currency. So we are growing in that sense. There are a couple of elements that will help us grow. going forward. One is, of course, we have delivered on the Altai high backlog, so we get a bigger installed base. That's one part. Then, of course, in this interesting environment, We see some of our customers using the equipment longer than maybe the normal life cycle. That will increase the need for service and spare parts and even in some cases refurbishment. Then last but not least, I mean, we need to more work more actively on the installed base than the customer base. I think we have a clear potential in growing servers in Kalmar in the years to come. And again, it's one of the cornerstones in the strategy for the standalone Kalmar.

Okay. Well, that's very clear. And then just finally, if I may, how resilient do you see the service business now going into 2024? I mean, what are your assumptions for that business you know, overall and aggregate level? Is the base case going to remain stable revenue-wise, or how would you expect it to develop?

Yeah, I'd say starting on the high upside, we see strong resiliency in the service business. Given the mix of our recurring revenue versus the non-recurring revenue, the recurring revenue is growing at a, continues to grow at a much faster rate. So that bodes well, and that's all about harvesting the opportunities from the install base. And the better we do that, The higher the probability is we can increase our net promoter scores with our customers. We know those that are promoters are now they're 95% likely to repurchase. So that's, as Kazimir stated with Kalmar, it's clearly central to our strategy in HIEB. But moving forward, I'd see good, strong resiliency in the services business, good level of stability and opportunities to continue to grow that business.

Yeah, and on the Kalmar side, I think, I mean, looking at the 15,000 units where we have a good visibility of the activity, the activity is on a good level in the second half of 2023 regarding the usage of the installed base. So we expect the service business to continue, at least on the levels where we are. And of course, we have an ambition to grow in service in Kalmar as well. And the same goes for McGregor.

Good. Thank you very much.

The next question comes from Erki Vesela from Indeers. Please go ahead.

Serki from Indus. Just a housekeeping question regarding orders and sales division in Kalamar in 2023. I mean, between large ports, small ports and then inland terminals. What were the changes in 2023?

We haven't specified the split there between large ports, small ports and terminals, but it's, of course, the strategy changes is quite big in Kalmar, where we are not anymore a big ports company we're very much more into smaller ports and terminals regarding the solutions and products that we now have in place in Kalmar so it's leaning more towards that than the large ports in the past where we had the heavy cranes and the end-to-end automation project so that is a It's a big change. You can also see it from the order backlog. In the past, the order backlog then converting into sales and profits was slower because we had the project business there and the heavy cranes there. Now we are only in product services and spare parts business. So you will see the order backlog then converting faster compared to the past. But we haven't opened up specifics around which part of the business in terminals, small ports or larger ports, how that developed?

Yeah, if I can recall it correctly, a couple of years back, the share of large ports was around 30%. Am I assuming right that it still has come down?

Yes. And also just the fact that we only have a couple of millions left of order backlog in heavy cranes. So if you compare to those figures, absolutely, that share has been coming down.

Okay, very good. Thank you so much. The next question comes from Tom Skogman from Carnegie.

Please go ahead.

Yes, I have some follow-up questions.

So in Kalamar, how large were the heavy crane lockers in 2023?

It was 7 million euros versus 20 million euros in 2022. So 13 million euros less losses. And it was very much according to our expectations. So actually the delivery of the remaining order book for the heavy cranes proceeded as expected.

And then in the McGregor, I know you have touched upon, you know, that the margin was 10% in merchant last year. But could you still give out exact numbers on the offshore losses and what was kind of the, you know, the losses coming from this bad project to get the understanding of the other parts of the offshore?

Well, in general, we have said that basically the offshore losses overall, not taking into account what is bad or what's good, the offshore losses were 30 million euros. So without those, McGregor would have delivered over 60 million euros positive result, comparable operating profit in 23. And as said, We have still a handful of offshore projects which need to be delivered in 2024, but in most of those cases, the project percentage of completion is very close to 100%.

And compared to 2023, as stated before, we had 20 loss-making projects in 2023, and now we're looking at a handful, and one of those is a bigger one. So then you get roughly the magnitude, how it looks for 2024 compared to 2023.

Okay, and then about McGregor's order outlook. You know what vessels have been ordered, so you have a pretty good visibility on, you know, at least the direction of orders this year compared to 23. What can you say about that? And then I heard Valtteri saying a couple of days ago here that, or yesterday, that yards are now expanding a lot in Asia to build up more capacity. So perhaps you could give your views on this a bit as well.

Yeah, overall, if we are looking at the vessel contracting activity and the projections for 2024, it looks solid from McGregor point of view, very similar kind of structure what we have seen for 2023. So for example, car carriers or pure car, pure truck carrier type of vessels specializing in electric vehicle transportation from one continent to the other as an example. So very, very much kind of merchant vessel driven activities, also container vessels in the sales funnel as well.

And I mean, overall, we see the market that is positive. And again, the order backlog for McGregor is on a very good and healthy level for 24, covering to a large extent what we expect regarding sales in 24.

But do you expect order growth in 24 in McGregor? I mean, you know what vessels have been ordered in all the segments.

Difficult to, we don't guide the order intake. And I mean, McGregor's orders are still, they are project orders. They can be lumpy. So it's, we would refrain on giving an exact order intake number or direction. But overall, we don't see any reason why McGregor's 24 market would be any worse than 23.

No, and on top of that, of course, we have been very conservative regarding the margins and the risks that we we take in, for example, in offshore, so that impacts there. Of course, you could be more aggressive, but we have, given the past, we have decided to be quite conservative there, and you can see a quite low order intake in offshore in 23, and we're not anticipating to grow that in 24, not with any large number, at least regarding projects, so that's also something to keep in mind regarding.

Okay, and then a final question to Scott. Is there any meaningful difference in your and Palfinger service offering and where you're doing service business?

We do a lot more direct service as compared to Palfinger. And of course, we're positioned that way most substantially in the U.S., As compared to Paul Finger, of course, as you've heard from their team, that's an area of focus for them to build up, and we see that they are. But nevertheless, that's been an area where that's served us well, and there's additional opportunities for us to continue to look at the mix of our own service versus the service that we do through our channel partners. But at this time, we like the mix. However, we're looking at opportunities where we can both increase our own as well as service coverage through our distribution partners. Tom.

Okay, thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you for the great questions and the great presentations and answers, gents. We are back on the last day of April when we publish our first quarter results.